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Carrefour CEO Reverses Five-Year Stock Drop Before Giving Plan

Carrefour CEO Reverses Five-Year Stock Drop Before Giving Plan
Carrefour has too much debt , costs that are too high, particularly at its head office, and an inefficient organizational structure, the CEO said June 18. Photographer: Balint Porneczi/Bloomberg

Carrefour SA’s new chief executive officer has started to reverse a five-year slump in the world’s second-largest retailer even before outlining his strategy.

The shares have risen 15 percent in Georges Plassat’s first three months in office, outperforming the Stoxx 600 Index for the first time since 2007, after declining 42 percent in three years under his predecessor Lars Olofsson.

With Plassat set to present his plan after first-half earnings tomorrow, investors including Jerome Forneris at Banque Martin Maurel in Marseille are buying more shares in the Boulogne-Billancourt, France-based retailer, betting Plassat can succeed where others have failed.

“Plassat understands marketing and what touches the French consumer,” said Forneris, who helps manage $8 billion at Martin Maurel, in a phone interview, calling the shares “very cheap.” Forneris said he expects possible announcements on management changes, pricing and plans to exit certain countries. “If we do have good news, the stock could gain 15 to 20 percent in a month,” he added.

Carrefour halted a 1.5 billion-euro ($1.9 billion) plan to remodel some of its largest European stores in March two months after announcing Plassat was replacing Olofsson as chairman and CEO. Yet since Plassat took the helm on May 23, he has limited himself, publicly at least, to diagnosing the retailer’s shortcomings and hinting at possible solutions.

Change in Philosophy

Carrefour has too much debt, costs that are too high, particularly at its head office, and an inefficient organizational structure, the CEO said June 18. The retailer may exit some countries and cede control in others where local competition is better placed after selling a stake in a Greek joint venture, he said at the time. The company said yesterday it will close two stores in Singapore.

Plassat’s brief tenure has led to “a complete change in management’s philosophy,” according to Bernard Delattre, president of Altimeo Asset Management in Paris, who holds Carrefour shares.

“The pragmatic person has arrived and will make pragmatic decisions to please the company and shareholders,” said Delattre in a phone interview. Plassat, who “visits stores unlike Olofsson who sat in his ivory tower,” understands that consumers are looking for low prices all of the time on basic items like milk or pasta, not short term promotions, he said.

Carrefour fell 2 percent to 16 euros at the close of trading in Paris yesterday, giving the company a market value of 10.9 billion euros, down 70 percent from almost 37 billion euros at the end of 2007. The market capitalization of Wal-Mart Stores Inc., the world’s largest retailer, has increased more than 20 percent in a similar period.

Enormous Opportunity

Delattre expects the French retailer to reach 25 euros to 35 euros a share eventually, though he declined to say when.

“Carrefour is losing market share every day,” he said. “The day when that reverses, the stock will rebound strongly. There’s an enormous opportunity in Carrefour shares.”

Carrefour may report first-half current operating income that fell to 706 million euros from 772 million euros, according to the median of four analysts’ estimates compiled by Bloomberg. Twelve analysts recommend buying Carrefour shares, 13 say hold them and 14 suggest selling. The average analyst rating has improved to 2.95 out of 5 from 2.2 at the beginning of the year.

Plassat joined Carrefour from Vivarte SA, where he turned an unprofitable shoemaker in 2000 into a company with sales of more than 3 billion euros by 2010. He earlier served as CEO of French supermarket operator Casino Guichard-Perrachon SA and ran Carrefour’s Spanish business.

Wait and See

While Plassat has a strong turnaround pedigree and extensive experience in grocery retailing, some investors are cautious of his prospects.

“There is no doubt about his competence,” said Amandine Gerard, president of Financiere de L’Arc in Aix-en-Provence, which oversees $235 million and doesn’t own Carrefour shares. “But the economic situation and improving margins will take time. It’s a stock we’re watching closely.”

Matthieu Giuliani, who helps manage $4 billion at Banque Palatine SA in Paris, said he isn’t tempted to buy Carrefour shares after multiple failures to revive the retailer. Plassat is Carrefour’s fourth CEO in eight years.

“There have been many strategic errors,” Giuliani said. “We’ll wait and see before making any bets.”

To be sure, Plassat has acknowledged the size of the task in hand. The CEO said at a shareholder meeting in June that he needs at least three years to “relaunch” the ailing retailer as Europe’s debt crisis weighs on consumer spending and it struggles to attract shoppers to its largest stores.

“Plassat is a positive electroshock for the market and for employees,” said Emmanuel Soupre, who helps oversee $5.5 billion including Carrefour shares at Neuflize Private Assets in Paris. “There haven’t yet been big changes, but the market has come back to the shares because it is giving credit to Plassat. We think he is capable.”

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